Tax News
March 2010
Gaines-Cooper ruling announced
The Court of Appeal has granted HM Revenue & Customs (HMRC) the right to tax millionaire businessman Robert Gaines-Cooper, who claims to have been living in the Seychelles for the last 34 years. Although he had abided by the rules to spend fewer than 91 days in the UK, the judge said that he had never been exempt from UK taxes as a non-resident citizen as he had not cut his ties with the country. Mr Gaines-Cooper may now have to pay a tax bill of £30m, for the years from 1993 to 2004. “If you read the old guidance at face value, as most of us did, and you spent less than 91 days here, you would have been treated as a tax exile,” said Mike Warburton of accountants Grant Thornton, who was an expert witness in the case. The case turned on whether Mr Gaines-Cooper had ever left the country in the first place.
HMRC boosts anti-avoidance revenue
Two years ago, the National Audit Office praised the Revenue’s overall anti-evasion work for raising a total of £9.17bn in extra tax in 2006/07, a vast increase on the £1.13bn raised in 1991/92. Now the law firm McGrigors has published data obtained under the Freedom of Information Act that indicates the special HMRC ‘High Net Worth’ unit gathered an extra £373m in tax in 2008/09, up from just £81m in 2004/05. McGrigors said the Revenue unit had focused on rich taxpayers, including foreigners living in the UK. Last month, the High Court upheld the right of HMRC to seek £100m in income taxes retrospectively from 2,500 self-employed IT and engineering contractors who had been using an offshore tax-avoidance scheme based in the Isle of Man.
Pre-nups may now be recognised in the UK
The Court of Appeal has made a ruling that is likely to change the status of pre-nuptial agreements. As the law currently stands in England and Wales, pre-nuptial agreements are not legally binding. This has led to the UK becoming a favourite choice for many seeking divorce.
Transfer pricing challenges set to rise
Pharmaceutical giant AstraZeneca has decided to settle its transfer pricing issues with HMRC at a cost of £505 million. It is expected that HMRC will now investigate more companies involved in international trade. Transfer pricing, or the way companies move assets such as intellectual property and services between tax jurisdictions and set a price for these services, has long been an issue for HMRC. This is because it feels if the price for the services is not set at arm’s length; they are underpriced when they travel to low-tax jurisdictions – to the disadvantage of the Exchequer.
April Fool’s Day for the named and shamed
The Treasury has announced that the policy of ‘naming and shaming’ tax offenders, announced in the last UK Budget, will commence on 1st April.
Labour did deal with Ashcroft
According to the Daily Mail, it appears that the Labour Party’s attempt to use Lord Ashcroft’s revelation of his non-domiciled status as political ammunition may backfire. Labour seized upon the fact that the Tory vice chairman does not pay UK tax on a reported £1bn of assets he holds offshore, after the peer confirmed his tax status this week. However, the Cabinet Office revealed that it endorsed a deal with the Conservatives in 2000 before Lord Ashcroft received his peerage, approving his eligibility as “a long-term resident”.
Plane attack on US tax office
A pilot smashed into a seven-storey tax building in Texas in late February. Andrew Joseph Stack, 53, who died in the collision was believed to have had a dispute with the IRS. More than 200 IRS employees worked at the building.
Clifford Chance receives slap by HMRC
Solicitors and barristers, unlike accountants, can offer clients legal privilege. In other words, anything you tell a lawyer remains confidential whatever happens, whereas the same is not true with your accountant. With a view to taking advantage of this situation, the legal firm Clifford Chance advertised itself as a better source of tax advice (something that many high-net-worth individuals and companies are looking for in light of the new, higher, rates of tax) and now HMRC has announced that it is ‘unimpressed’ by this marketing approach and intends to warn this firm and others against it.
Accountants may be next for amnesty
The Mail on Sunday believes that accountants could be the next profession to be offered a tax amnesty. HMRC is currently running a new disclosure opportunity for the medical profession but the paper has speculated that accountants, lawyers and construction company bosses could be the next to be targeted. The amnesty for doctors runs out at the end of March. Under the scheme, taxpayers are offered a 10% penalty if they come clean during the amnesty. If they fail to come forward, taxpayers face repaying their tax plus a much higher penalty.
The dangers of offering tax advice
Commentators are warning that anyone could be fined for discussing tax planning, under draft legislation proposals from the taxman. The ‘Working with Tax Agents: the next stage’ draft legislation could see any individual who gives anyone tax advice that leads to a tax loss to the Treasury as guilty of a new offence of deliberate wrongdoing, which carries a fine of between £1,500 and £50,000.
Retrospective taxation worries
HMRC is to close a loophole relating to manufactured payments received by companies involved in sale and repurchase, or ‘repo’, transactions. It has said the change will be applied retrospectively from 1st October 2007. This has led to a warning by the Chartered Institute of Taxation (CIoT) that the Treasury’s use of retrospective action on tax puts the principle of certainty in the tax system into doubt. “We can understand that at times the government wants to take action to ‘confirm the general understanding of the tax system’ in the light of questions raised. However, this needs to be used with great caution: it must not dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions,” said John Whiting, tax policy director at the CIoT.
